Return to Normal Winter Weather Affects Futures, Heating Costs

The front month NYMEX futures contract price for delivery of natural gas to Henry Hub in Louisiana rose swiftly during the month of September and early October, likely on forecasts of cooler weather for fall and winter compared to last year, according to the Energy Information Administration’s latest monthly supplement to its “Short-Term Energy Outlook” report.

The front month futures contract settled at $3.41 per MMbtu on October 4, $0.56 per MMBtu above prices on September 4, but $0.23 per MMBtu lower than this time last year.

Natural gas storage is still 8.3 percent above the 5-year average as of October 4th, a continuing vestige of the very high storage levels seen all year, but concerns about limited storage capacity appear to have eased during September and early October. Weekly storage injections have remained relatively in line with forecasts since September 4, contributing less to price fluctuations than in previous months.

The front month heating oil futures contract settled at $3.19 per gallon on October 4, an increase of 4 cents per gallon from September. For heating oil, the Brent crack spread widened to $0.51 per gallon on October 4, the highest since November 2008. Tight distillate markets contributed to the rising crack spread. Distillate inventories in the Northeast for the week ending September 28 were about 40 percent below the 5-year average.

The EIA projects average household expenditures for heating oil and natural gas will increase by 19 percent and 15 percent, respectively, this winter (October 1 through March 31) compared with last winter because of a return to roughly normal winter weather in the eastern United States. Average expenditures for households that heat with heating oil are forecast to be higher than any previous winter on record.

The National Oceanic and Atmospheric Administration projects the Northeast, Midwest, and South will be about 20 percent to 27 percent colder than last winter, which was unusually warm. Weather in the West is projected to be about the same as last winter.

For crude oil, prices reached their highest levels since May by the middle of September, but then declined and were lower at the end of the month than at the beginning. The Brent and WTI crude oil futures prices settled at $112.58 and $91.71 per barrel, respectively, on October 4, down $1.60 and $3.59 per barrel, respectively, from September 4.

EIA expects US total crude oil production to average 6.3 million barrels per day (bbl/d) in 2012, an increase of 0.7 million bbl/d from last year. Projected US domestic crude oil production increases to 6.9 million bbl/d in 2013, the highest level of production since 1993.